By: Lewis E. Bennett III (Trey)
At or near the bottom of most small companies and startup businesses’ priorities list is updating their minute book, as most do not have the luxury of having in-house counsel to maintain and keep current their minute book, such as the case with large, publicly held companies. As a result, some business owners may forget to update their minute book for many years, while others may not even have a minute book at all. However, whether you are starting a business or have been operating for years, it is vital to each and every business to maintain and keep current their minute books.
One of the reasons an updated minute book is important is because it leaves a trail that enables owners and attorneys to look back at the decisions and transaction of the business. Additionally, the minute book is an important audit backup, and can help determine effective dates for tax purposes and establish justification for the accrual of expenses and fixed obligations.
Second, an updated minute book can help avoid challenges to the business’s authority to take certain actions. Whether these challenges come from shareholders, directors, employees, or governmental agencies, an updated minute book is an important record of the authority granted to officers and directors to act on behalf of the business.
Third, the minute book establishes the background record needed by your attorney to support certain legal opinions. When a business undertakes certain transactions, it may be necessary to obtain a legal opinion regarding the business’s history, as well as current authority for the transaction. Without an updated minute book, such legal opinions are not possible.
Fourth, an updated minute book is the only official record of the true ownership of the business, as ownership is not officially shown anywhere else. A minute book should reflect any and all ownership transfers, and may even contain original share certificates for safekeeping.
Finally, an updated minute book is extremely important in the event the business is sold. Any potential buyer is going to want to examine the minute book of the seller to ensure all actions have been properly taken throughout the business’s existence.
Whether you are starting a business, cannot remember the last time you updated your minute book, or have been operating a business without a minute book, please feel free to contact your Stark and Knoll attorney about setting up, maintaining, and/or keeping current your business’s minute book.